Home Loan

A history of Australian home loans

Owning a home is the quintessential Australian dream. And for many first-home buyers, home loans have played a crucial role in making this dream a reality. 

The history of Australian home loans dates back to the 19th century and has evolved significantly over time. In this blog, we’ll take you through some of the key milestones that have shaped the lending landscape, from the Real Property Act in 1858 to more recent times.

1858: The Real Property Act

The roots of home loans in Australia can be traced back to the Real Property Act, which was introduced in South Australia in 1858. This groundbreaking legislation introduced a system of land registration, simplifying the transfer of property ownership and mortgages.

1893: The failure of the Federal Bank of Australia

In 1881, the Federal Bank of Australia was established in Melbourne. However, it collapsed two years later amid a speculative property boom – triggering Australia’s banking crisis of 1893.

1911: The Commonwealth Bank of Australia established

In response to the financial crisis of the 1890s, the Commonwealth Bank of Australia (CBA) was established in 1911 as a government-owned commercial bank (i.e. it didn’t have any central bank functions).

CBA was the first bank in Australia to receive a federal government guarantee and gradually began acquiring central bank functions, including the responsibility for issuing banknotes in 1924.

1931-32: The Great Depression

The Great Depression hit Australia hard as foreign investments dried up and overseas demand for Australian goods fell. The Australian economy contracted sharply and numerous banks folded amid liquidity crises and mounting bad debts.

While economic growth resumed in 1932, It took Australia almost a decade to recover from the Great Depression’s impacts.

Determined to avoid something like this happening again, the Australian government brought in a tightly regulated financial system for banks and home loan lenders. This included strict controls on interest rates and lending practices. While this provided a stable environment, it also limited competition and innovation in the home loan market.

1960: The Reserve Bank of Australia established

In 1960, the Reserve Bank of Australia (RBA) was created to take over the central banking responsibilities of the Commonwealth Bank. The RBA’s role includes:

  • Implementing monetary policy (i.e. setting the cash rate)
  • Issuing currency
  • Maintaining a strong financial system

1965: The Housing Loans Insurance Corporation (HLIC) established

The HLIC was a government initiative created to provide insurance for home loan lenders against potential losses if a borrower defaulted on their mortgage. By providing home loan lenders with this safety net, the HLIC helped many Australian first-home buyers break into the market. 

In 1997, the Australian government decided to privatize the HLIC, and it was subsequently sold to Genworth Financial Australia. While Genworth is now known as Helia, it still provides lenders’ mortgage insurance (LMI).

1970: Start of financial deregulation

The 1970s and 1980s saw the gradual deregulation of the Australian financial sector. Interest rate controls were lifted, and financial institutions were allowed more flexibility in setting their lending rates. This period marked the beginning of a more dynamic and competitive home loan market, providing borrowers with a wider range of products and interest rates.

With deregulation came the rise of mortgage brokers. Mortgage brokers in Sydney and other major cities became popular among homebuyers as they offered personalized assistance in finding the right home loan from a variety of loan lenders.

1998: Australian Prudential Regulation Authority (APRA) established

APRA oversees the banking and insurance industries to ensure their stability, soundness, and compliance with relevant laws and prudential standards.

2001: Australian Securities and Investment Commission (ASIC) established

ASIC regulates and supervises the financial services industry, including mortgage brokers.

2008: The Global Financial Crisis

The 2008 Global Financial Crisis had far-reaching consequences on the global economy, and Australia was not immune. Many home loan lenders became more cautious, implementing stricter lending policies to mitigate risks. These, in turn, impacted some borrowers’ access to loans, including first-home buyers.

2018: The Banking Royal Commission

The Banking Royal Commission was an inquiry into misconduct in the banking, superannuation, and financial services sectors. Following the inquiry’s findings, there was increased scrutiny of home loan lending practices, leading to more stringent assessments of borrowers’ ability to repay loans. Lenders became more cautious, resulting in stricter lending criteria and reduced access to credit for some borrowers.

2020: RBA cuts the cash rate to 0.10% 

In November 2020, the RBA cut Australia’s official interest rate to an all-time low of 0.10% to stimulate the economy during the pandemic. This, in turn, saw home loan interest rates fall to historic lows, triggering an unprecedented property market upswing.

2022: RBA increases the cash rate

After Australia’s inflation rate began accelerating, the RBA started lifting interest rates to slow the economy down.

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